Salesforce.com Inc., the high-flying provider of cloud-based customer history software, announced today plans to acquire Demandware Inc., the leading cloud-based e-commerce technology provider to larger consumer goods brands and retailers that sell directly to consumers via the web.
The deal could lead to Salesforce becoming a significant competitor in offering e-commerce technology to B2B online sellers, says Bernardine Wu, CEO of e-commerce technology consulting firm FitForCommerce. While B2B is not currently Demandware’s strength, Wu says, “Salesforce backing could supercharge B2B for Demandware.”
Andy Hoar, principal analyst at Forrester Research Inc. who covers B2B e-commerce, says Demandware brings Salesforce an established e-commerce software platform, a strong revenue-producing e-commerce client base, and a position from which to expand into the business-to-business e-commerce software market. “This acquisition gives Salesforce just-add-water e-commerce with an impressive client list, $100 million in incremental revenue, and a leadership team experienced in e-commerce,” he says. With Demandware’s roots in serving retailers, “Salesforce will focus first on business-to-consumer e-commerce, but B2B e-commerce won’t be far behind,” Hoar says.
Wu notes that Salesforce clients in industries such as financial services, legal service, accounting and healthcare could also use Demandware to add e-commerce or content-management functionality. “Demandware is now more than just an e-commerce platform.”
Salesforce said it would pay about $2.8 billion for Demandware and that the deal likely would close by July 31.
Salesforce.com is named as a provider of customer relationship management technology by 17 companies listed in the B2B E-Commerce 300, which ranks companies by their annual web sales.
Demandware is the provider of e-commerce technology to 52 retailers in the Internet Retailer Top 500 and 18 in the Second 500, which rank companies by their annual web sales, according to Top500Guide.com. Demandware clients include L Brands, the parent company of Victoria’s Secret and No. 28 in the Top 500, L.L. Bean (No. 34), Lands’ End (No. 44), Nike Inc. (No. 47) and Abercrombie & Fitch (No. 58). Salesforce is listed as the provider of customer relationship management (CRM) software for just one retailer in the Top 500, Coach Inc. (No. 163).
The Demandware acquisition will provide the basis for a new e-commerce service from Salesforce, Salesforce Commerce Cloud. The new Salesforce offering will compete with other software delivered through the cloud—that is, with the vendor hosting the software and data and clients accessing it via the web. While both Salesforce and Demandware have always delivered their technology through the cloud, they will take on major technology providers that initially provided on-premise e-commerce software but in recent years have offered cloud-based offerings as this model gained traction. Those include IBM Corp., Oracle Corp. and the hybris division of SAP SE. The new Salesforce Commerce Cloud will also compete with NetSuite Inc., which like Demandware has from the start delivered its software via the cloud, also known as the software-as-a-service model. NetSuite has two clients in the Top 500 and 19 in the Second 500.
Justin King, senior partner at B2B e-commerce advisory firm B2X Partners and founder of resource site eCommerceandB2B.com, says the acquisition of Demandware enables Salesforce to go further beyond its traditional reliance on other companies to provide its clients with e-commerce software. In many cases, Salesforce clients use e-commerce technology from major business software providers like Oracle and SAP or from vendors that specialize is providing e-commerce and other software built on the Salesforce.com platform, including CloudCraze and Apttus. He adds that there appears to be strong demand for Salesforce clients to integrate their Salesforce software with e-commerce.
“With Demandware, Salesforce will be well positioned to deliver the future of commerce as part of our Customer Success Platform and create yet another billion-dollar cloud,” says Marc Benioff, Salesforce chairman and CEO.
“Becoming part of Salesforce will accelerate our vision to empower the world’s leading brands with the most innovative digital commerce solutions that enable them to connect 1:1 with customers across any channel,” says Demandware CEO Tom Ebling.
Salesforce and Demandware have worked together on projects, including the ability to put Demandware e-commerce Buy links in Salesforce.com community forum software deployed by users of Demandware software.
CloudCraze was “excited” to hear of the Demandware deal because it demonstrates Salesforce’s commitment to e-commerce, says Andrew Witherspoon, executive vice president of CloudCraze. He says CloudCraze is not threatened by the deal because it concentrates on B2B e-commerce while Demandware focuses on serving online retailers. CloudCraze B2B e-commerce clients include The Coca-Cola Co., brewer ABInBev and Ecolab, a provider of hygiene technology for such industries as food service, hospitality and healthcare.
In December, Salesforce agreed to buy contract management and billing company SteelBrick for about $360 million in stock and assumption of SteelBrick stock options and equity awards, according to an 8K form Salesforce filed with the U.S. Securities and Exchange Commission.
Hoar notes that the acquisition of SteelBrick, which provides configure-price-quote technology with only minimal e-commerce capability, led to larger expectations by industry analysts that Salesforce would also dive further into B2B e-commerce technology. For now, the Salesforce.com technology platform offers B2B e-commerce capability through Salesforce technology partners including CloudCraze Software LLC and Apttus Corp.
On a conference call today about the pending acquisition with stock analysts, executives from both companies said Demandware will meet a demand that Salesforce customers have been making to have e-commerce software available along with the CRM and other technology Salesforce provides. “Customers have been saying they want this entire suite,” Salesforce chief operating officer Tom Ebling said on the call, adding: “Commerce is an incredibly important part.”
Although Ebling and the other executives on the call did not specifically address how Salesforce and Demandware might address the B2B e-commerce market, they noted that acquisition would open doors for Salesforce to get into new areas, such as electronic invoicing, and that it the company would say more about new products and services following the expected closing of the acquisition in the second fiscal quarter ending July 31, 2016.
Salesforce and Demandware each declined to comment further about possible plans for B2B e-commerce software when questioned by a reporter.
Industry analysts, however, say they expect the acquisition to lead to the further development of Demandware’s software to accommodate online B2B buyers and sellers, with such features as providing online access to products based on a buyer’s department and level of authorized spending. “Salesforce for sure will bring Demandware into the world of B2B,” says Gene Alvarez, a vice president and analyst at technology research and advisory firm Gartner Inc.
Saleforce is ranked as the No. 3 North American provider of cloud technology by Forrester Research, with projected 2016 revenue from its cloud service of $7.6 billion. That trails only the Amazon Web Services unit of Amazon.com Inc., No. 1 in the Top 500, and Microsoft Corp.
Paul Demery contributed to this report.
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